Calgary businesses feel pinch of rising interest rates

For much of the past 20 years, Under the Bridge Fashions in Renfrew has been a successful business.

With a small, eclectic variety of clothing and local crafts, the store had a good following until the pandemic hit.

Then, not qualifying for most relief programs, the owner started using her credit card to keep the store open.

"My interest that I pay monthly, which is my second-highest expense in the business, has more than doubled," Ursula Wegen said.

The Bank of Canada raised its benchmark interest rate again Wednesday by 75 points, bringing the base cost of most lending to 3.25 per cent.

It was the fifth rate hike of 2022 and may not be the last.

There are two more scheduled decision dates left this year.

Rising rates are meant to curb the national inflation rate, which appears to have peaked at 8.2 per cent in June.

July came in at 7.6 per cent.

That means the economy is now slowing, something Wegen says she's noticing.

"Customers are less frequent and when they do come, they spend a lot less or look for amazing deals," she said.

With inflation showing signs of responding to the interest rate hikes, what economists are watching is just how quickly and how significantly prices will settle out.

“These are very big, blunt policy initiatives. Interest rates, you know, they can move the economy, and you think it'll be a little bit but it could be by a lot," said Rob Roach, deputy chief economist for ATB Financial.

The Canadian Federation of Independent Business (CFIB) says nearly three quarters of its members say rising rates are hitting their bottom line and slowing their recovery from the pandemic.

Many businesses take out loans for specialized equipment they need to operate, or in the case of retailers, borrow to buy stock for their stores.

"You think about the back end of the kitchen or even a trucking company, or even any type of business such as an optometry or health-related professional office," said Annie Dormuth of the CFIB.

"Chances are, they have a lot of equipment that is under loans right now.”

Raising interest rates is widely accepted among economists as the single most effective tool for curbing overheated inflation, but it also comes with a significant risk of triggering a recession.

Despite some signs that efforts to slow the economy are working, Alberta is well-positioned to ride it out, according to Roach.

"Because we're getting that offsetting boost from high commodity prices, even though they've come down a bit, our economy is still going to almost certainly avoid anything like a recession," said Roach.